Tuesday, July 31, 2012

Mr Draghi, Show Us the Money

Gold and silver prices were up a bit last week. Gold up 2.5% and silver 1.5%. Maybe the lows have come  in early this year, the usual August lows occurring in June. Time will tell.

Anyway, it appears those still around with the stomach to invest in these markets, (rather than being happily long) did a bit of 'short covering' on the news that Mr Draghi, of European Central Bank fame, was about to unleash unlimited liquidity to buy as many Spanish, Greek and Italian bonds it takes to calm the market.

If you are short, ie betting on the price of gold and silver going down, you would definitely want to rush to buy as much precious metals as possible before your tipping point.

Sure enough, this short-covering rally caused the prices to ping upwards.

This week we will see if these Central Banks have what it takes to go head-to-head with European governments, like Germany,  and do what they were created to do. That is, stop financial panics and hence bank runs by providing liquidity to banks.

Remember, already the equivalent of 5% of Spanish GDP in euros has fled Spain in recent times. Capital flight is a banks worst nightmare. Confidence is lost and that spreads like wildfire to all sectors. Depression ensues (see 1931). Unless banks act in the next few weeks, the euro could very well be toast.

Come on then, Mr Draghi, talk is cheap, show us the money.

Gold in New Zealand dollars: $2006.43 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $34.88 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

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